"Key Stock Market Variables in January? ... US Inflation, Corporate Earnings Forecasts, and US-China Policies"

Samsung Securities Report

On the 2nd, Samsung Securities identified the key variables affecting the domestic stock market in January as △ U.S. inflation, △ quality evaluation of profit forecasts for Korean companies, and △ policy announcements from the U.S. and Chinese governments.

Yang Il-woo, a researcher at Samsung Securities, analyzed in a report released that day, "January could be the most challenging period of the year, but in the long term, it could present opportunities."

The U.S. Federal Reserve (Fed) cut interest rates for the third consecutive time at the Federal Open Market Committee (FOMC) meeting on the 18th of last month, but shocked the market by sharply lowering the expected number of rate cuts this year from four to two. As a result, short- and long-term interest rates surged, causing weakness in domestic and international stock markets and a stronger dollar.

Researcher Yang explained, "Since there is a somewhat dominant view that tariffs and immigration policies under the Trump administration could increase inflationary pressures, if inflation rises even before the inauguration, market concerns may increase. Therefore, the December inflation data to be released in January could carry significance beyond just one month's inflation."

He added, "The interest rate rise caused by the highlighted inflation concerns is likely to further slow the momentum of fund inflows into bond funds, which could also dampen the momentum for stock price increases, so it is necessary to prepare for this."

Regarding corporate profit forecasts, he advised paying attention to whether the downward adjustment trend continues after the second quarter. Yang said, "The downward revision of profit forecasts for Korean companies, which began in September 2024, is ongoing, and the speed of downward adjustments cannot be considered slow. Historically, fourth-quarter earnings estimates often fall short of market expectations, so the momentum of profit forecast adjustments in the Korean stock market is weak in January and February, and profit momentum tends to lag stock prices by five to six months. Therefore, weakened profit momentum does not necessarily lead to stock price declines."

Considering this, he emphasized that attention should be focused more on whether downward revisions will continue after the second quarter rather than on profit momentum itself.

Finally, he noted that attention should be paid to what U.S. President Donald Trump will mention at his inauguration scheduled for January 20. This is because if he mentions issues other than the expected △ repeal of the IRA, △ tariffs on automobiles related to Mexico/Europe/China, and △ deportation of illegal immigrants, it could impact the stock market.

He pointed out, "Exchange rate volatility will remain high depending on U.S. and Chinese policies, but a weaker Korean won is likely to work in favor of increasing Korean companies' profits."

Researcher Yang recommended, "Since January, especially the first half, could be the most challenging period in 2025, it is advisable to respond defensively by increasing exposure to companies that outperformed during stock market downturns, institutional investors who act as supply-demand players, and companies with high dividend yields."

For the January KOSPI band, he suggested 2,350 to 2,650 points, applying a 12-month forward price-to-book ratio (P/B) of 0.8 to 0.9 times. The top picks included △ SK Hynix, △ HD Hyundai Heavy Industries, △ Hyundai Mobis, △ LS ELECTRIC, △ LG Uplus, △ BNK Financial Group, △ Green Cross, △ BGF Retail, △ SM Entertainment, and △ Park Systems.